CHAPTER ONE

INTRODUCTION

BACKGROUND TO THE STUDY

The significance of small and medium-sized businesses in economic growth has been recognized around the world in a variety of ways, including wealth creation, job creation, and poverty alleviation (Kithae, Gakure, & Munyao, 2012). In most developing countries, small and medium-sized businesses are an integral component of the economic fabric, and they play a critical role in promoting growth, innovation, and prosperity. Despite their tiny size, they are the most important businesses in the economy because when all of the individual effects are added together, they outperform the larger corporations. Small and medium-sized businesses provide several social and economic benefits that cannot be emphasized.

SMEs are defined as non-affiliated, independent businesses with fewer than a certain number of employees. This number varies by country, and various criteria other than the number of employees are used to classify organizations as SMEs.

SMES accounted for 95 percent of enterprises and 60-70 percent of job generation in the majority of countries around the turn of the millennium (OECD, 2000). Small and medium-sized businesses are typically found in the service sector of diverse economies, which accounts for two-thirds of employment in most nations. Because they are highly innovative, they are able to make better use of our natural resources, resulting in an increase in the country’s wealth through increased production. Small and medium-sized businesses have unquestionably enhanced people’s living standards.

Accounting techniques are essential for documenting, analyzing, monitoring, and evaluating an organization’s financial position, preparing tax records, and giving information assistance to a variety of other organizational responsibilities (Amidu et al., 2011). Accounting procedures are significant in the context of SMEs because they can assist enterprises handle short-term challenges in critical areas such as costing, expenditure, and cashflow by giving information to support monitoring and management.

The sheer thought of accounting and bookkeeping intimidates many small business owners. But, in reality, both are rather straightforward. Keep in mind that bookkeeping and accounting processes have two primary goals: to keep track of income and expenses, which increases the likelihood of turning a profit, and to collect the financial data required for various filings. There is no necessity to keep records in a specific format. However, certain firms must employ one of two methods of crediting their accounts: the cash method or the accrual system, as long as the records accurately reflect the business’s income and expenses. Depending on the size of the company and the number of sales, you can either generate your own ledgers and reports or hire an accountant (Williams et al 1999). Assets, liabilities, and equity are the three primary areas in which financial position elements, such as property, money received, and money spent, are classified. Each different asset, obligation, income, and expense is represented by its own “account” within these basic groups. An account is nothing more than a record of financial inflows and outflows in a certain period of time.

Because they only represent the inflows and outflows absorbed in the financial-position elements at the end of the time period, income and expense accounts are considered transient accounts.

Furthermore, SMEs are being praised for their crucial role in supporting grassroots economic growth and equitable sustainable development, and this nurturing has resulted in greater entrepreneur activity in the SMEs sector in developing nations (OECD, 2000). In transition and developing countries, SMEs play a critical role. SME development is a fundamental instrument in poverty reduction initiatives, and their advancement is critical to continued economic growth, because they are an integral part of a country’s economy. The death rate of these tiny businesses, on the other hand, is extremely high. According to the Nigerian Tiny and Medium Scale Enterprises Development Agency (SMEDAN), 80 percent of SMEs perish before their fifth anniversary, and another small proportion dies between the sixth and tenth year, leaving just around five to ten percent of young SMEs to survive, prosper, and mature. This means that SMEs in Nigeria have a survival rate of fewer than 5% in their first five years of operation. This implies that SMEs in Nigeria have been unable to contribute to the country’s progress. Poor accounting processes, a lack of concrete record keeping, insufficient accounting information and procedures, a lack of funding, limited institutional ability, and a lack of managerial capacity are all factors that contribute to these untimely close-ups. In this context, maintaining good accounting records and processes is a pre-requisite for the success of any firm or enterprise; this entails documenting all business entity transactions, including assets, liabilities, and capital (liquidity). There is a need for relevant business and management expertise to properly manage the finance, purchasing, selling, production, and human resources aspects of the business in order to solve limitations such as lack of finance, weak institutional capacity, and lack of managerial skills and training of small-scale enterprises. Accounting is vital because it allows businesses or organizations to comprehend their financial perspectives, according to Jones (2012), and it is especially important for small commercial enterprises to implement good accounting practices in order to develop effectively. SMEs also require suitable and advanced accounting procedures and systems to better manage precious resources and boost customer and owner/manager values, as well as to aid them in controlling costs, monitoring, and improving productivity, and ensuring the attainment of business goals.

STATEMENT OF THE PROBLEM

The majority of the existing research literature on accounting in Nigerian SMEs is biased toward the use of financial accounting techniques and methods by small business owners, information technology adoption, and research on credit accessibility for SMEs, with only a few studies on modern accounting techniques being adopted by SMEs in Nigeria.

According to Nandan (2010), SMEs, like larger companies, require adequate and sophisticated accounting processes and systems to effectively manage scarce resources and increase the firm’s value. Although SMEs may encounter certain challenges in fully employing accounting techniques/practices due to their small size and limited resources, they face equal complexities, uncertainties, and are more prone to failures than bigger enterprises.

Despite its importance in the success of enterprises, a number of Small Scale Enterprises have not paid much attention to accounting practices in relation to their company transactions. This could be due to the owners’ or managers’ lack of understanding of accounting practices. Also, determining whether comprehensive accounting systems that satisfied the rules under which it was incorporated was kept was challenging. It was difficult to ascertain how much non-compliance with established accounting procedures contributed to the failure of a good accounting system to be implemented. It’s difficult to say how much non-recognition of the importance of accounting processes to the small business’s continuous existence and growth, the owners’ lack of educational background, and the use of untrained labor play a role.

Furthermore, many firms, particularly small businesses, have been sluggish to adopt modern accounting approaches, resulting in the waning relevance of key accounting techniques and methods as a critical help to managerial decision-making. This gap is commonly referred to as “relevance lost,” in which an organization’s accountants have not entirely abandoned concepts of conventional management accounting despite advances in the business environment, resulting in a lack of managerial accounting skills for decision making and a lack of technical skills, both of which are major roadblocks to the development of a small business.

Poor accounting techniques are one of the top ten reasons why small businesses fail, according to Goltz (2011). To put it another way, you can’t run a business if you don’t know what’s going on. The lack of adoption of good accounting techniques/methods, which is a worm eating deeply into the large chunk of revenues generated by these SMEs for their growth and survival, affects the operations and performance of SMEs in Nigeria, especially this issue of lack of adoption of good accounting techniques/methods, which is a worm eating deeply into the large chunk of revenues generated by these SMEs for their growth and survival. As a result, the number of Small and Medium-Sized Enterprises (SME) has increased (SMEs).

OBJECTIVES OF THE STUDY

The main goal is to look into the impact of accounting practices on the performance of small businesses.

Other specific goals that must be met include:

  1. Determine the extent to which small business owners are aware of accounting practices and how this affects their company’s performance.
  2. Examine the impact of accounting practices on the performance of small businesses.
  3. Assess the impact of accounting techniques and practices on financial decision-making by SMEs’ managers and operators.
  4. Determine the obstacles to and/or benefits of accounting techniques/practices in small businesses.
  5. Examine the link between accounting techniques and the operations and survival of small businesses.
  6. Assess the difficulties that small business owners have when it comes to accounting approaches
  7. Propose a feasible answer to the issues that diverse small businesses face.

 RESEARCH QUESTION

The research question gives a structure and recommendations for understanding the research study’s substantial knowledge.

The following are some of the research questions that were posed:

  1. What are the levels of accounting knowledge among small business owners, and how does this effect business performance?
  2. What effect do accounting practices have on the performance of SMEs?
  3. Accounting techniques and practices have an impact on financial decision-making by SMEs’ managers and operators?
  4. What are the barriers to and/or facilitators of accounting techniques/practices in small businesses?
  5. What is the connection between accounting techniques and the operations and survival of small businesses?
  6. Accounting Techniques: What are the Challenges for Small Business Owners?

 STATEMENT OF HYPOTHESIS

In order to appropriately address the study’s concerns, the following research hypotheses were created. For testing, the hypotheses are given in the null form:

HYPOTHESIS NUMBER ONE

Ho1: Accounting techniques have no discernible impact on the performance of SMEs.

TWO HYPOTHESIS

There is no link between accounting practices and the operation/survival of SMEs.

SIGNIFICANCE OF THE STUDY

Though the purpose of this study was to assess the usefulness of accounting procedures in small and medium-sized businesses, it goes without saying that accounting techniques play an important role in the integrity of choices and the success of small businesses.

The goal of this study was to raise awareness of the importance of accounting techniques and fundamental accounting procedures to small businesses through documentation.

It will thus be of great assistance to the Small and Medium Scale Enterprises Development Agency of Nigeria (SMEDAN) in assessing the success of its initiatives, with a particular focus on the issue of poor accounting technique introduction and fundamental accounting procedures in such companies. It would also help the Agency determine or formulate its future plans.

It will also provide information to small-scale businesses (SSE) on how to keep adequate accounting records and standards. The result will make it much easier for Internal Revenue Service and Value Added Tax authorities to establish plans for expanding the tax net to include such businesses, which make up a large section of Nigeria’s business community.

Finally, It will also be of use to the student, researchers for further research study, the existing and prospective entrepreneur as well as any interested party. It will help students have a better understanding and appreciation of the practical accounting situation in small businesses.

SCOPE OF THE STUDY

Small and medium-sized businesses (SMEs) account for more than 90% of all businesses in Nigeria, according to the data (Central Companies Directory, 2010). Many research on small-scale enterprise have been undertaken, including accounting procedures and small-scale productivity, but none have looked at accounting practices in small-scale businesses. It is for this reason that our study seek to look into the effectof accounting techniques on small business enterprises performances in Osun Metropolis.

The operations of the regulating authority, Nigeria’s Small and Medium Scale Enterprises Development Agency (SMEDAN), were also taken into account. Due to the researcher’s schedule, the investigation was confined to small and medium-sized businesses operating in the Osun metropolitan.

LIMITATIONS OF THE STUDY

Limitations exist in all studies, and they must be acknowledged. Furthermore, the results were based on information gathered from respondents, which could be prone to human error, omissions, or misstatements.

The following are the study’s limitations:

a) First and foremost, time did not permit the researcher to collect data from all SMEDAN-affiliated small businesses and institutions.

b) The study was unable to depict the entire scenario of all small-scale businesses in Nigeria.

c) Because the sample was drawn from a single Nigerian state. As a result, the findings and analysis differ slightly from one organization to the next.

d) Some respondents did not understand the questionnaire.

e) Some respondents did not pay enough attention to the significance of the analysis.

f) The amount of time available to collect data from the responder was insufficient.

 DEFINITION OF TERMS

  1. Accountant number one: Any person who holds a professional license to practice accountancy from a recognized professional body and has the legal ability and power to perform the tasks of accountants in taxation and audit practice is considered an accountant.
    2. SMALL-SCALE ENTREPRENEURSHIP
    It is described as any business run, managed, and controlled by no more than two entrepreneurs, with no more than twenty workers, no distinct organizational structure (all employees report to the owners), and a minimal market share.

Accounting for management
Management accounting, often known as managerial accounting, is concerned with the provision and use of accounting information to managers inside organizations in order to give them with the knowledge they need to make better business decisions.

A snapshot of an organization’s financial status or position at a given point in time is a balance sheet (Statement of Financial Position).
Accrual Basis: A method of accounting in which the impact of transactions on the financial statements is recognized in the time periods when revenues and expenses occur rather than when the organization pays or gets cash.
Cash Basis Accounting: A method of accounting in which income and expense are recognized when the company gets and expends cash.

7. Accounting: Accounting is described as the act of finding, measuring, and disseminating economic data in order for users of the data to make informed judgements and decisions.

Financial Performance Measures: Financial performance measures can be defined as the monetary results of a company’s operations.

Leave a Comment